Advice - when for mortgage application?

breakingbad

Hi all,

My wife and I are currently in the process of looking at houses, with a view to buying sometime between now and next summer.

Our circumstances are this:

• Both teachers, on permanent contracts, earning £43k and £35k respectively.
• Currently renting (privately) @ £900/mth
• £20k deposit (mostly gifted from our parents)
• £8k credit card debt (all 0%) between us.
• We are generally looking at new build 3/4-bed houses in the £200k-£225k range, borrowing £180-200k (£900-£1050/mth)
• We are expecting our first child in December and thus would like to move around this time.

Currently, my wife and I work 40miles apart, and we life halfway between our jobs. I commute 20miles each way North to Newcastle and she commutes 20miles each way South to Teesside, resulting in us each spending £150/mth on fuel. After the baby is born, we want to live in Newcastle, near my job, our friends and (more crucially) her parents.

My wife is intending to take approx 25 weeks maternity leave, with 4 weeks full pay, 2 weeks 90% pay, 12 weeks 50% pay & the remaining 7 weeks at SMP, returning to work (and thus full pay) in July just before the summer holidays. Therefore the income hit due to maternity pay is not that much.

We understand there will be childcare costs to take into consideration after my wife returns to work in September 2015, which is why we are not intending to borrow anywhere near the maximum we have access to.

Regarding our credit card debts, we are paying off a substantial (£1000+/mth combined) amount off our credit card balances, meaning we will have these cleared by the time the baby is born.

The part where we need advice is - we are not sure whether to apply for a mortgage sooner rather than later. The way I see it we have three options:

1) Apply in the next few months (with £6-8k CC debt)
By taking this option we can ensure we have a new-build home to move into in December/January, but we'd have to apply with the CC debt as it is currently.

2) Apply in Oct/Nov 2014 (with £1-2k CC debt)
At this time, we will have paid off a lot of the debt, but my wife will be heavily pregnant, which can't count favourably in a mortgage application. There is also the risk that house prices will rise between now and then.

3) Hold off and apply in July 2015, with zero CC debt
At this time, (hopefully) we will have a 6th month old baby, but my wife will be back on full pay and we will have zero CC debt. However, house prices will inevitably have risen by then.

What would you do?

We are also unsure whether to apply to 90% LTV mortgages, and use the full £20k as deposit, or apply to the 95% "Help to Buy" mortgages, and put say £10-12k towards the deposit and have £8-10k to help with costs, furnishings etc.

Any advice appreciated...

Cheers!

amnblog

Engage a broker now to discuss your best timing options.

HappyMJ

My personal opinion...

Clear the CC debt before applying. I know it's 0% but they'll use the minimum repayment as an essential expense in the affordability calculation and that will reduce the amount you can borrow.

I would use as much as possible towards the deposit. After you have moved in you won't have any money so you can then charge anything essential onto the credit cards and pay them off as quick as you can whilst paying as little as possible towards the mortgage.

You will need to prove savings are yours and are under your control. You really should hold them for 6 months. If you can get them gifted to you now and pay off the CC's and replenish the savings over the next few months that would be better.

Yeah house prices rise and they also fall and mortgage rates rise and fall too. If you want a low long term fixed rate then apply now to lock it in.

breakingbad

OK, thank you for your responses... I have booked an appointment with an independent mortgage advisor for tomorrow. Apparently the initial assessment is free. They are whole of market and, regarding fees, they say they can either be paid by commission or by a 1% fee of the mortgage, or combination of both - is that normal/ok?

Regarding the debt - mine is currently laid out like this:

CC1 (Barclaycard) - £4157 owed, £6400 limit
CC2 (Natwest) - £795 owed, £3400 limit
CC3 (Nationwide) - £0 owed, £5100 limit
Overdraft (Barclays) - £0 owed, £1800 limit

Total Usage: £4952 Total credit available: £16700

So as you can see currently I'm using 29% of my available credit. All the debt is currently 0% so isn't costing me anything.

However, in terms of which looks better to a mortgage lender, am I better to pay off the smaller balances first, close the Natwest and Nationwide cards, and ask Barclays to close my unused overdraft? This would leave me using 65% of my available credit (Barclaycard only).

Or are these better left open (unused) to keep my credit utilisation lower?

Thanks!

breakingbad

Also, one last question - which do you think will help our mortgage application more...

1. Continue to pay off the credit cards and apply for a 93-95% LTV mortgage with no debt.

2. Just make the minimum payments on the cards, and save the £1k+/mth so we are sure we have the deposit to get a 90% LTV mortgage (once fees, stamp duty etc are paid).

Thanks (again!),

G

Thrugelmir

garmcqui wrote: »

So as you can see currently I'm using 29% of my available credit. All the debt is currently 0% so isn't costing me anything.

Lenders will be assessing applicants with £8k of debt, annual household income of £78k, and no savings. That's the base point. How much it costs you to borrow money is of no interest.

breakingbad

Thanks, so what would you advise mate?

breakingbad

Well, we went to see the broker today, and walked out with an agreement in principle from Nationwide on the Help to Buy (75% LTV) scheme for new-builds.

Taking into account our credit card debt, using a £12.5k deposit and borrowing £187.5k on a £250k property, the interest rate was 2.94% on a 3 year fixed deal, making repayments £784.45 (£115/mth less than we're currently paying in rent!!)

So I'm very pleased!

Over thing - the broker said she would check Nationwide, as they would only leave a "soft" footprint on our credit files - how is that, and is that normal?

Cheers,

G